Dollar slightly up, as G20 leaders convene

LisaTwaronite

DeborahLevine

WilliamL. Watts

SAN FRANCISCO (MarketWatch) -- The U.S. dollar was slightly higher against most major rivals Wednesday, but sticking to relatively narrow ranges as leaders of the world's 20 most powerful economies convened for their historic two-day meeting designed to address the deepest global economic slump since World War II.

The dollar index
DXY, +0.55%
a measure of the greenback against a trade-weighted basket of six major currencies, stood at 85.623, up from 85.567 in late North American trade Tuesday.

U.S. President Barack Obama and British Prime Minister Gordon Brown, in a joint news conference ahead of the London gathering, downplayed rifts within the G20 over fiscal stimulus measures and regulatory reforms, after French President Nicolas Sarkozy's threats to walk out of the summit unless there is a stronger commitment to strengthening international financial regulations. See full story on Obama, Brown G20 remarks.

Another attendee, Japanese Prime Minister Taro Aso, who is preparing an additional fiscal stimulus for Japan's ailing economy, criticized Germany for resisting calls to further boost its own spending plans.

"There are countries that understand the importance of fiscal mobilization and there are some other countries that do not -- which is why, I believe, Germany has come up with their views," Aso said, according to an interview published Wednesday by the Financial Times.

"Developments over the past couple of days suggest that the group will do well to convey unity, let alone conjure a coordinated plan of action," said Neil Mellor, a currency strategist at Bank of New York Mellon, said before the communiqué was released. "Specifically, a polarization in [views] surrounding the need for further fiscal stimulus has grown."

The dollar had a muted reaction to the Institute for Supply Management's index of U.S. manufacturing activity rose to 36.3 in March, from 35.8 the previous month. Economists surveyed by MarketWatch expected the index to read 36. See Economic Report on ISM data.

A separate report showed pending home sales rose 2.1% in February.

And earlier report from ADP Employment Services said private employers slashed 742,000 jobs in March, setting the stage for a dismal report from the U.S. labor Department on Friday. See Economic Report on ADP jobs report.

Deteriorating sentiment has tended to boost the dollar on repatriation and haven-related in-flows into the greenback and dollar-denominated assets.

Meanwhile, strategists at Lloyds TSB said the dollar could extend gains over the next couple of days on haven-related buying tied to the prospect of bankruptcy filings by General Motors
GM, +1.63%
and Chrysler.

Expectations for a rate cut and the potential signaling of moves to expand unconventional monetary policy measures by the European Central Bank on Thursday could also put added pressure on the euro, they said, in a research note.

The euro traded at $1.3212, down from $1.3249 late Tuesday.

The European Union statistics agency Eurostat said the euro-zone unemployment rate rose to 8.5% in February, its highest level since May 2006, from an upwardly revised 8.3% in January.

Pound yen, up

The British pound rose to $1.4419, up from $1.4321 late Tuesday.

A strong reception to the British government's latest auction of government bonds, or gilts, provided a boost, said strategists at Brown Brothers Harriman.

The auction of 3.5 billion pounds ($5 billion) of 4.75% gilts due to mature in 2015 drew 7.8 billion pounds worth of bids, for a bid-to-cover ratio of 2.23. The results came as a relief after an auction last week of 40-year gilts failed to draw a full complement of buyers.

The pace of the contraction in the British manufacturing sector slowed more than expected in March, though conditions remain weak, according to the CIPS/Markit purchasing managers index released Wednesday.

The PMI rose to 39.1 in March from 34.9 in February, hitting its highest level since October. The index, however, still pointed to a sharp contraction in activity.

A reading of less than 50 means a majority of purchasing managers reported a drop in activity, while a reading of more than 50 signals expansion.

The dollar lost some ground against its Japanese counterpart to trade at 98.64 yen, down slightly from 98.93 yen late Tuesday.

The yen held its ground despite a steep fall in the Bank of Japan's closely-watched tankan survey of business sentiment, which fell to its lowest level on record in the first quarter. See full story on tankan.

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